Question 1

Consider a swap to pay currency A floating and receive currency B floating. What type of swap would be combined with this swap to produce a swap to produce a plain vanilla swap in currency B.

Accepted Answer

A)   pay currency B floating, receive currency A fixed
B)   pay currency B fixed, receive currency A floating
C)   pay currency B fixed, receive currency A fixed
D)   pay currency B floating, receive currency A floating
E)   none of the aboveF) A) and E)
G) A) and D)

Question 2

Which of the following distinguishes equity swaps from currency swaps?

Accepted Answer

A)   equity swap payments are always hedged
B)   equity swap payments are made on the first day of the month
C)   equity swap payments can be negative
D)   equity swap payments have more credit risk
E)   none of the aboveF) C) and D)
G) A) and B)

Question 3

Equity swaps can be used for all of the following except:

Accepted Answer

A)   to synthetically buy stock
B)   to synthetically sell stock
C)   to convert dividends into capital gains
D)   to synthetically re-align an equity portfolio
E)   none of the aboveF) A) and C)
G) A) and B)

Question 4

Interest rate swap volume is greater than currency swap volume because virtually ever business is exposed to interest rate risk.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements about diff swaps is true?

Accepted Answer

A)   they involve interest payments in separate currencies
B)   they are based on the difference between interest rates in two countries
C)   they are based on the difference between interest rates of different maturities
D)   the notional amount reduces throughout the life of the swap
E)   the notional amount increases throughout the life of the swapF) All of the above
G) B) and C)

Question 6

Find the fixed rate on a plain vanilla interest rate swap with payments every 180 days (assume a 360-day year)  for one year. The prices of Eurodollar zero coupon bonds are 0.9756 (180 days)  and 0.9434 (360 days) .

Accepted Answer

A)   5.9 percent
B)   5 percent
C)   6 percent
D)   5.5 percent
E)   2.95 percentF) D) and E)
G) None of the above A

Question 7

An interest rate swap with both sides paying a floating rate is called a

Accepted Answer

A)   plain vanilla swap
B)   two-way swap
C)   floating swap
D)   spread swap
E)   basis swapF) B) and E)
G) A) and E)

Question 8

Swap payments typically involve adjusting for the fraction of the year in some fashion. This adjustment is known as

Accepted Answer

A)   the compounding convention
B)   the accrual period
C)   the fraction convention
D)   the money market convention
E)   the payment periodF) All of the above
G) B) and E) B

Question 9

The fixed rates on a currency swap are the same as the fixed rates on plain vanilla interest rate swaps in the respective currencies.

Accepted Answer

A) True 
 B)False

Question 10

Currency swaps can be viewed as a pair of bonds with each bond denominated in a different currency.

Accepted Answer

A) True 
 B)False

Question 11

An interest rate swap is a special case of a currency swap with both currencies being the same.

Accepted Answer

A) True 
 B)False

Question 12

Currency swap volume is greater than equity swap volume.

Accepted Answer

A) True 
 B)False

Question 13

The value of a pay-fixed, receive floating interest rate swap is found as the value of a

Accepted Answer

A)   floating-rate bond times the value of a fixed-rate bond.
B)   floating-rate bond plus the value of a fixed-rate bond.
C)   floating-rate bond minus the value of another floating-rate bond.
D)   fixed-rate bond minus the value of another fixed-rate bond.
E)   floating-rate bond minus the value of a fixed-rate bond.F) C) and E)
G) C) and D)

Question 14

A currency swap with no notional amount can be used to synthetically convert a bond issued in one currency into a bond issued in another currency.

Accepted Answer

A) True 
 B)False

Question 15

Find the upcoming payment interest payments in a currency swap in which party A pays U. S. dollars at a fixed rate of 5 percent on notional amount of $50 million and party B pays Swiss francs at a fixed rate of 4 percent on notional amount of SF35 million. Payments are annual under the assumption of 360 days in a year, and there is no netting.

Accepted Answer

A)   party A pays $2,500,000, and party B pays SF1,400,000
B)   party A pays SF1,400,000, and party B pays $2,500,000
C)   party A pays SF1,750,000, and party B pays SF1,400,000
D)   party A pays $2,500,000, and party B pays $2,000,000
E)   party A pays $50 million, and party B pays SF35 millionF) B) and E)
G) C) and D)

Question 16

If a swap is effectively terminated by entering into the opposite swap with another counterparty, the credit risk will be eliminated.

Accepted Answer

A) True 
 B)False

Question 17

To determine the fixed rate on a swap, you would

Accepted Answer

A)   use put-call parity
B)   price it as the issuance of a fixed rate bond and purchase of a floating rate bond or vice versa
C)   use the same fixed rate as that of a zero coupon bond of equivalent maturity
D)   use the continuously compounded rate for the shortest maturity bond
E)   none of the aboveF) A) and C)
G) A) and B)

Question 18

A company that borrows at a floating rate and uses a swap to convert into a fixed rate is assuming some credit risk.

Accepted Answer

A) True 
 B)False  True

Question 19

The most basic and common type of swap is called

Accepted Answer

A)   basis swap
B)   plain vanilla swap
C)   plain paper swap
D)   commercial swap
E)   bond swapF) B) and D)
G) B) and C)

Question 20

The value of a pay-fixed, receive-floating interest rate swap is found as the value of a

Accepted Answer

A)   floating-rate bond minus the value of a fixed-rate bond.
B)   fixed-rate bond minus the value of a floating-rate bond.
C)   floating-rate bond minus the value of another floating-rate bond.
D)   fixed-rate bond minus the value of another fixed-rate bond.
E)   none of the above correctly identify how this value is found.F) A) and C)
G) None of the above

Exam 12: Swaps

Consider a swap to pay currency A floating and receive currency B floating. What type of swap would be combined with this swap to produce a swap to produce a plain vanilla swap in currency B.

Correct Answer
verified

Which of the following distinguishes equity swaps from currency swaps?

Correct Answer
verified

Equity swaps can be used for all of the following except:

Correct Answer
verified

Interest rate swap volume is greater than currency swap volume because virtually ever business is exposed to interest rate risk.

Correct Answer
verified

Which of the following statements about diff swaps is true?

Correct Answer
verified

Find the fixed rate on a plain vanilla interest rate swap with payments every 180 days (assume a 360-day year) for one year. The prices of Eurodollar zero coupon bonds are 0.9756 (180 days) and 0.9434 (360 days) .

Correct Answer
verified
A

An interest rate swap with both sides paying a floating rate is called a

Correct Answer
verified

Swap payments typically involve adjusting for the fraction of the year in some fashion. This adjustment is known as

Correct Answer
verified
B

The fixed rates on a currency swap are the same as the fixed rates on plain vanilla interest rate swaps in the respective currencies.

Correct Answer
verified

Currency swaps can be viewed as a pair of bonds with each bond denominated in a different currency.

Correct Answer
verified

An interest rate swap is a special case of a currency swap with both currencies being the same.

Correct Answer
verified

Currency swap volume is greater than equity swap volume.

Correct Answer
verified

The value of a pay-fixed, receive floating interest rate swap is found as the value of a

Correct Answer
verified

A currency swap with no notional amount can be used to synthetically convert a bond issued in one currency into a bond issued in another currency.

Correct Answer
verified

Correct Answer
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If a swap is effectively terminated by entering into the opposite swap with another counterparty, the credit risk will be eliminated.

Correct Answer
verified

To determine the fixed rate on a swap, you would

Correct Answer
verified

A company that borrows at a floating rate and uses a swap to convert into a fixed rate is assuming some credit risk.

Correct Answer
verified
True

The most basic and common type of swap is called

Correct Answer
verified

The value of a pay-fixed, receive-floating interest rate swap is found as the value of a

Correct Answer
verified

Exam 12: Swaps

Consider a swap to pay currency A floating and receive currency B floating. What type of swap would be combined with this swap to produce a swap to produce a plain vanilla swap in currency B.

Correct AnswerverifiedShow Answer

Which of the following distinguishes equity swaps from currency swaps?

Correct AnswerverifiedShow Answer

Equity swaps can be used for all of the following except:

Correct AnswerverifiedShow Answer

Interest rate swap volume is greater than currency swap volume because virtually ever business is exposed to interest rate risk.

Correct AnswerverifiedShow Answer

Which of the following statements about diff swaps is true?

Correct AnswerverifiedShow Answer

Find the fixed rate on a plain vanilla interest rate swap with payments every 180 days (assume a 360-day year) for one year. The prices of Eurodollar zero coupon bonds are 0.9756 (180 days) and 0.9434 (360 days) .

Correct AnswerverifiedA

An interest rate swap with both sides paying a floating rate is called a

Correct AnswerverifiedShow Answer

Swap payments typically involve adjusting for the fraction of the year in some fashion. This adjustment is known as

Correct AnswerverifiedB

The fixed rates on a currency swap are the same as the fixed rates on plain vanilla interest rate swaps in the respective currencies.

Correct AnswerverifiedShow Answer

Currency swaps can be viewed as a pair of bonds with each bond denominated in a different currency.

Correct AnswerverifiedShow Answer

An interest rate swap is a special case of a currency swap with both currencies being the same.

Correct AnswerverifiedShow Answer

Currency swap volume is greater than equity swap volume.

Correct AnswerverifiedShow Answer

The value of a pay-fixed, receive floating interest rate swap is found as the value of a

Correct AnswerverifiedShow Answer

A currency swap with no notional amount can be used to synthetically convert a bond issued in one currency into a bond issued in another currency.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a swap is effectively terminated by entering into the opposite swap with another counterparty, the credit risk will be eliminated.

Correct AnswerverifiedShow Answer

To determine the fixed rate on a swap, you would

Correct AnswerverifiedShow Answer

A company that borrows at a floating rate and uses a swap to convert into a fixed rate is assuming some credit risk.

Correct AnswerverifiedTrue

The most basic and common type of swap is called

Correct AnswerverifiedShow Answer

The value of a pay-fixed, receive-floating interest rate swap is found as the value of a

Correct AnswerverifiedShow Answer

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A

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B

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True

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